Investing In A Fixer Upper

Fixer uppers are basically “rundown” homes that need a little TLC.  This can be time consuming and heavy on your pocket too. But if you  enjoy breaking and making things- you may love this kind of project.

Before investing in one, you may need to consider a few points:

Firstly, you  need to decide if you are investing in this property to keep for  personal use or to resell. This will help you gauge how much of your  resources to spend on this project. Obviously, if you are looking to  resell the property you do need to consider whether you will be able to  recover the amount plus an extra profit to keep you going. While turnover  may be slow, the profit may be large enough to sustain the time lapse in  between flips.

Secondly, the  time factor. Turning houses to a presentable condition takes a lot of  time. This is an important factor that needs to be considered as you may  need to resell this property to generate more income. Therefore,  balancing your cash flows well and taking into account how much time you  have will earn you more points.

TAX ADVANTAGES-  Deductions and depreciations are two of the many advantages a property  investment can earn you. Speaking to your tax advisor can help navigate  you in the right direction.

Cost incurred during the flipping process:

Capital Gains Tax-  CGT, is a tax levied on the capital gain arising from the sale or  disposal of an asset. This can be on property or stock, shares and  bonds. CGT is chargeable at 20% of the capital gain in a case where the  asset being sold was acquired after 1st February 2009. Anything before  this date is charged at 5% of the gross capital amount realised from the  sale.

VAT on sale of property-  Bear in mind the possible VAT implication on the sale of a property. If  a property being sold is by a business and is being sold as a going  concern, then a 15% is applicable on the sale value. Developers are  usually subject to VAT and income tax.

Transfer of property- stamp duties and transfer fees are a real cost and could be estimated between 5-8% on the purchase / sale of a property.

Potential sources of passive income earned from a property investment  include rent, capital appreciation and best of all a healthy profit.

A prudent investor will have to undergo a cost benefit analysis before  making such a large investment decision. Being calculating will help  you flip houses and earn money in this way.

As it has been quoted by Armstrong Williams
“Now,  one thing I tell everyone is learn about real estate. Repeat after me:  Real estate provides the highest returns, the greatest values and the  least risk”

So invest in your future now, and let your bricks work for you!